State “economic development” programs a failure, analyst says

MIDLAND - New Gross Domestic Product numbers released by the Bureau of Economic Analysis Tuesday indicate that Michigan is the only state to have experienced negative economic growth from 1999 to 2008 and demonstrate anew that state economic development programs don't work, said Mackinac Center Fiscal Policy Director Michael D. LaFaive.

"These numbers underscore the state's economic woes and make transparent the failure of the state's jobs department — the Michigan Economic Development Corp. — and its myriad of high-profile and often unfair development programs, such as the Michigan Economic Growth Authority," said LaFaive. "Michigan's relentless economic decline has exposed the folly of substituting discriminatory business tax breaks and subsidies for genuine business climate reform."

This year also marks the 10-year anniversary of the creation of the MEDC during what was a relative high point for state economic output. Michigan ranked a respectable 16th in per capita GDP in 1999. Since then, the state has plummeted to 41st place. While Alaska, Delaware and Florida experienced bigger real declines in 2008, Michigan is the only state in the union whose real GDP has declined each of the past three years. (For more on the MEDC, read LaFaive's new essay "Transparent Failures.")

MEGA was created in 1995 and offers targeted business tax credits to specific corporations, even if they have in-state competitors that do not receive the same special treatment.

"Economic development programs such as MEGA are not only ineffective, they are patently unfair," said LaFaive. "Why should one Michigan job provider be forced to pay full freight while their competitors manage to swing tax credits or subsidies to lower their own cost of doing business?"

There are signs that Lansing may be waking up to this reality. For example, Rep. Tom McMillin, R-Rochester Hills, has offered an amendment to prohibit granting targeted tax breaks to a firm that has a competitor in the state. This amendment may be introduced today during consideration of House Bill 4922, which would lower the eligibility for certain MEGA tax breaks.

"The MEDC should be renamed the Michigan Political Development Corp. since its real function has been giving cover to legislators unwilling to remove the tax, regulatory and labor law disincentives that hobble all Michigan job providers," said LaFaive. "Without real reform, nothing will prevent yet another lost decade ahead for Michigan's beleaguered residents."